Assume that Industrial Cranes invested in five new cranes on December 31, 2015. The cranes were purchased for $50,000 each and have a useful life of 10 years, but technically, their useful life may be longer. The cranes are expected to have a salvage value of $5,000 each after 10 years. The cranes were paid for in cash. Suppose the company uses straight-line depreciation.

Question A

How does the purchase of the five cranes affect the company's balance sheet for 2015?

Select the best option:

a) Operating costs increase by $250,000, and net income before taxes decreases by $250,000.

b) Operating costs increase by $22,500 and net income before taxes decreases by $22,500.

c) Long-term assets increase by $225,000 and short-term assets decrease by $22,500.

d) Long-term assets increase by $250,000 and short-term assets decrease by $250,000.

e) There is no impact.

Question B

How does the purchase of the 5 cranes affect the company's income statement in 2015?

Select the best answer (Explain your answer):

a) Operating costs increase by $250,000 and net income before taxes decreases by $250,000.

b) Operating costs increase by $22,500 and net income before taxes decreases by $22,500.

c) Long-term assets increase by $225,000 and short-term assets decrease by $22,500.

d) Long-term assets increase by $250,000 and short-term assets decrease by $250,000.

e) There is no impact.

Question C

How does the purchase of the five cranes affect the company's income statement for 2016?

Select the best answer (Explain your answer with the corresponding calculations):

a) Operating costs increase by $250,000 and net income before taxes decreases by $250,000.

b) Operating costs increase by $22,500 and net income before taxes decreases by $22,500.

c) Long-term assets increase by $225,000 and short-term assets decrease by $22,500.

d) Long-term assets increase by $250,000 and short-term assets decrease by $250,000.

e) No impact.

Question D.1

The company decides to use an accelerated depreciation method, so that the value of a crane decreases by $17,000 in 2016, by $10,000 in 2017, by $4,000 in 2018, and then by $2,000 each in the next 7 years.

What impact will this have on the income statement compared to using the straight-line method? (Explain your answer with the corresponding calculations).

Select the best answer:

a) The net income before taxes will be higher in the first years, but lower in the later years.

b) The net income before taxes will be lower in the first years, but higher in the later years.

c) Long-term assets will be lower after 11 years.

d) Long-term assets will be greater after 11 years.

e) There is no effect.

Question D.2

In what scenario and what considerations would you give to industrial cranes to use either an accelerated or linear depreciation method?

Answer rating: 100% (QA)

ANSWER QUESTION A The purchase of the five cranes will increase longterm assets by 250000 and will d... View the full answer